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Using MRR to alleviate your Cash Flow Problem

Posted by on Feb 27, 2019 in ACCOUNTING, BOOKKEEPING | No Comments

Many small businesses out there struggle with cash flow.  A lack of cash flow can cause significant business problems but also can cause significant stress for the business owners. Nobody wants to have those questions lingering in their mind about how they are going to pay their bills and/or employees. If you are having cash flow issues the solution to your problem may be MRR… just as if you are having hunger pains your solution is obviously donuts.

What is MRR?

MRR is Monthly Recurring Revenue. In short, your customers pay you a fixed monthly amount for a service. The idea is that if you create enough MRR business it will even out your cash flow as money from your MRR will be appearing in your account as regularly as pizza in my stomach.

How do I create MRR?

The first thing you need to create MRR is to have a good understanding of your industry and what extra value you can provide to your customers. The extra ongoing value is the MRR. If you are a service based company all of your revenue may be MRR but let’s leave this possibility out for now.

A couple examples of MRR: 

Charge a fee for ‘support’ type services whether they be of an advisory capacity or otherwise. The easiest example of this is a software provider. You buy a software and they charge you a monthly fee for ‘support’. They are there when you need them with any problems you have.

Another great example is a value added package to a product. The HVAC company that installs your furnace and then collects fees monthly to diagnose any problem you have when you have with your HVAC.

A great example of possible MRR opportunity (hint hint) would be McDonald’s delivering 2 Sausage & Egg McMuffins and 2 Hashbrowns every Saturday morning at 9:30 am to my house. There are only soo many cures to the weekend crumple.

How do I get people to sign up for my MRR?

It will take a while for you to build up your MRR base. The easiest way to get people to sign up for your MRR service, whatever it is, is to offer it as a Freemium. Using our examples above it is the software company providing free support for the first year after the purchase or the HVAC company providing their service package free for the first year after the install. This is called a Freemium.

Something to consider is also having multiple packages for your MRR. Let’s call them a Bronze, Silver, and Gold package for simplicity sake. Each package will have a different set of conditions and services within and a different price to go along with the added service offerings.

The great thing about MRR transactions from a bookkeeping and accounting perspective is we can set them up to be an entirely automated process. Check out my previous Blog on payments. If you have an idea on how to create MRR for your business feel free to reach out and let’s get the ball rolling.

If you can’t tell I’m starving while writing this article.